Public capex seen at Rs 7.5 lakh crore in H2, 80 percent higher than H1

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December 14, 2020 7:31 AM

Overall spending, including revenue expenditure, by the Centre and states will, however, rise only 15% or thereabouts on year to over Rs 33 lakh crore in H2.

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The Centre, states and central PSEs among them will likely spend Rs 7.5 lakh crore on capital investments in the second half of this year, up 80% over such expenditure in the first half, according to an FE analysis, based on official projections and information gathered from different sources.

Overall spending, including revenue expenditure, by the Centre and states will, however, rise only 15% or thereabouts on year to over Rs 33 lakh crore in H2.

The expected surge in public capex in H2 would mean that a recovery in fixed investment rate that was visible in Q2 will gain further steam in the second half of the fiscal, giving a strong support to gross capital formation.

Fixed investments, for long in the doldrums, improved to report just 7.3% decline on year in Q2, compared with a record fall of 47% seen in Q1; of course a favourable base (-3.9%) aided the pick-up.

Chief economic adviser (CEA) Krishnamurthy Subramanian had said the sharp narrowing of the contraction in gross fixed capital formation in Q2 from a record decline in Q1 was an “encouraging sign”, and noted the improvement was despite a slide in government spending in the September quarter.

As is known, the economy hasn’t received much government spending support in Q2 — government consumption expenditure fell 22% on year. However, there have since been signs of improvement with the Centre’s budget spending rising 9.5% on year in October, after a 26% fall in September; also, budgetary capex was up 130% on year in the month, at Rs 31,519 crore.

However, states’ capex, which is estimated to have declined sharply by about 40% on year to Rs 1.2 lakh crore in H1FY21, may remain subdued in H2FY21 as well, primarily due to the acute revenue constraints they are facing. For the current fiscal as a whole, states’ capex performance may turn out to be one of the worst in recent years, with likely achievement of about Rs 3 lakh crore or 46% of the budget target of Rs 6.5 lakh crore. States’ capex was about Rs 5 lakh crore or 42% of the public capex (Centre, states and CPSEs) in FY20.

Capex (excluding budget support) by CPSEs, including departmental arms such as the NHAI and the railways, grew just 9% on year to about Rs 1.2 lakh crore in H1FY21 and is estimated to grow by 12% on year to Rs 2.8 lakh crore in H2FY21. Thanks to constant monitoring and prodding by the finance ministry, the CPSEs’ capex is expected to clock an 11% growth on year at about Rs 4 lakh crore for FY21 as a whole despite the Covid-19 obstacles.

The Centre’s budget capex, which fell by 12% on year to Rs 1.66 lakh crore in H1FY21, is projected to rise 90% on year to Rs 2.84 lakh crore in H2FY21. For the year as a whole, the Centre’s capex may rise 32% on year to Rs 4.5 lakh crore, largely aided by an additional Rs 35,000 crore provision made as part of the recent stimulus measures. The Centre has made its intent clear to stick to the revised capex target for this fiscal.

If public-sector fixed capital formation has held up in recent years even amid a worrisome, prolonged decline in private investments, the contribution of state governments have been vital; state capex is also seen to have a higher growth multiplier potential than Central Budget/CPSE capex. In FY20, public capex was roughly in the 5:3.6:3.4 ratio among the states (budget), CPSEs and the Centre (budget). However, this ratio will likely change to 3:4:4.5 in FY21 as the share of states in public capex has fallen.

At an aggregate level, however, public capex in FY21 will be about Rs 11.5 lakh crore, 4% lower than in FY20.

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